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New Feature Announcement: New Key Statistics Module, Z-Score and F-Score

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Apr 07, 2011
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You may have noticed that we have released a new Key Statistics module in our Guru Trades Pages. We would like to explain the details of this module.


This is how it looks:


1_13021893891KKL.jpg


The key statistics module is shared by both Guru Trade (New) and Guru Trade (Old) pages. It is located at the top of the Guru Trade (Old) page. Since the modules are moveable in the Guru Trade (New) page, the default position of the new Key Statistics module is the top left side. This is different from the previous key statistics module. If you found that your new key statistics module is squeezed at the right side, please move it to the left, and it will stay there.


There are four columns for the key statistics module. The first column focuses on the market valuation parameters such as market cap, enterprise value, ratios like P/E, P/B, P/S, etc. The second column shows the business performance and growth rate. The third column displays the numbers that are related to business efficiency, such as profit margins, ROA, ROE and ROI. These parameters are calculated this way:


(BNRI refers to "Before Non-Recurring Items")



ROE: ( income BNRI ) / (mean of TTM common equity)



ROA: ( income BNRI) / (mean of TTM total assets)



ROI: (income before extras & discontinued operations) /

(LT Debt + convertible debt + non-current capital leases + mortgages+ book value of preferred stock + common equity)



The last column tries to go deeper with financial strength and the business trend of the company. The first item in the fourth column is Z-score. The second is F-score. The other six items are factors related to F-score.


Z-score is a factor that measures the financial strength of the company. It measures the like hood of bankruptcy of the underlying business. Our columnists have discussed the concept extensively:


· Altman Z-Score: A tool to predict likelihood of bankruptcy

· Geoff Gannon Investor Questions Podcast #13: How Do You Find a Stock's Z-Score?

· How the Z-score can help your investment returns


The financial condition is measured by Z-score by its value and is interpreted as follows:


Z-score > 2.99 = Safe

1.8
Z-score

In the display of the Z-score, we colored the value. If it is bigger than 2.99, we use green color. If it is smaller than 1.8, we use red color. If it is in between, we will use black.


Compared with Z-score, F-score measures the trend of the business. F-score is between 0-9. A higher F-score indicates a healthy business trend. If the business is getting better as indicated by higher ROA, higher current ratio, less leverage, or gross margin expansion, or the quality of the business earning is good as indicated by more free cash flows than earnings, the six items below F-score are color coded. Green means positive, and red means negative.


The details of F-score have been explained very well here:


· Geoff Gannon Investor Questions Podcast #12: How Do You Find a Stock's F-Score?

· Academics can enhance your returns - the Piotroski F-Score

· Geoff Gannon Investor Questions Podcast #10: How Do You Avoid Falling into a Value Trap?


The Z-score and F-score of the distribution of the S&P 500 companies are shown in the chart below. As we can see, quite a large percentage of S&P 500 companies have a Z-score of less than 1, and F-score less than 4. These companies might be in financial distress and in downward trend. More will be discussed in future articles.


1_1302196726ozWl.jpg


F-score and Z-score will be added into Guru Screener and will also be in the new extensive screener that is under development.


Now if we check Dell Inc. (DELL, Financial), it has a Z-score of 4.8, which indicates a healthy financial condition; but an F-score of 3, and year-to-year ROA decline and gross margin decline. Maybe it is a value trap.


As always, please give us your comment and feedback.
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